‘Consumption boost of Rs 55,000 crore’: SBI on Rs 2,000 banknotes withdrawal

State Bank of India (SBI), in its latest report, has said that the withdrawal of Rs 2,000 banknotes would have a significant impact on deposits, credits and consumption. It said that consumption demand might be front-loaded by Rs 55,000 crore.  

“One of the major benefits of withdrawal of Rs 2000 note might be the immediate uptick in consumption demand. As per our estimate consumption demand may be frontloaded by Rs 55,000 crore,” the SBI report said. 

The lender said that since the banknote would remain a legal tender – unlike demonetisation – consumption could see a boost. High-value amounts could be spent on high-value items such as gold, jewellery, AC, mobile phones, and real estate. 

Cash transactions, for example, have sharply increased at petrol pumps, with many spending their Rs 2,000 banknotes there. The report quoted the All-India Petroleum Dealers Association (AIPDA) that said that digital payments that comprised 40 per cent of the sales at petrol pumps have dropped to ~10 per cent. 

Another means the SBI report highlighted was cash on delivery. People have started ordering items with a cash-on-delivery option. The report added that nearly 75 per cent of Zomato’s users are opting for cash-on-delivery and paying with Rs 2,000 banknotes. “Ecommerce, food and online grocery segments are likely to witness an increase in customers opting for cash on delivery,” it said. 

Also read: Half of Rs 2,000 notes in circulation back in system, 85% as deposits: RBI Gov Shaktikanta Das

Sundry purchases such as consumer durables, boutique furniture are expected to see an uptick in sales. Temples and other religious institutions are expecting an increase in donations through Rs 2,000 notes. 

“Around Rs 55,000 crore could be withdrawn by public from ~Rs 92,000 crore saving bank deposits to be made cumulatively through Rs 2000 notes. This should give consumption boost along with increasing the velocity of money,” the report said. The SBI report said that considering the MPC of Rs 55,000 crore at 0.7, the Private Final Consumption Expenditure (PFCE) might increase by Rs 1.83 lakh through the multiplier effect. 

“Considering that ratio of PFCE to GDP at constant prices is around 58%, we may expect Q1 FY24 GDP growth at ~ 8.1% with an upward bias due to the impact of this Rs 2000 note withdrawal event…this reinforces our projection that FY24 GDP could be higher than 6.5%, per the RBI estimate,” it said. 

The SBI report, however, added that there won’t be much impact on liquidity due to the withdrawal of Rs 2,000 notes, as the amount deposited would be withdrawn in smaller denominations later.

However, some amount would come in loan accounts and create client deposits and balances, since every loan given by a bank lands up in a client banking account within the banking system. 

Also read: Rs 2,000 notes: SBI receives Rs 14,000 cr as deposits, exchanges Rs 3,000 cr

DEPOSIT

Current account savings accounts (CASA) deposits are likely to increase by Rs 1.5 lakh crore due to this measure. “ASCB data shows that there has been an increase in total deposits of Rs 3.3 lakh crore (81% increase of which is in term deposits) during the fortnight ended 2 Jun’23. However, there is some seasonality in the data. The average increase in deposits during the same fortnight in the last two years was around Rs 1.5 lakh crore. Thus, taking that also into account, banks may have received additional deposits of around Rs 1.8 lakh crore during the fortnight this year,” the report stated, adding that the corporate houses are likely to be parking the additional funds with banks. 

CREDIT

“On credit front, as per our assessment, 30% of deposits (or Rs 92,000 crore) might go for loan payment (in CC/OD and in term loan accounts also). Interestingly, despite repayments getting frontloaded, credit growth continues to remain quite strong,” the report said.

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